Alii Place, Suite 150 1099 Alakea Street, Honolulu,...

Daniel A. GrabauskasEXECUTIVE DIRECTOR AND CEO

GOVERNMENT AFFAIRS/AUDIT/LEGAL MATTERS

COMMITTEE MEMBERS

Terrence M. Lee CHAIR

Colleen Hanabusa

VICE CHAIR

Michael D. Formby Donald G. Horner

Ivan Lui‐Kwan, Esq.

Government Affairs/Audit/Legal Matters Committee Alii Place, Suite 150

1099 Alakea Street, Honolulu, Hawaii (entrance on Richards Street)

Thursday, January 28, 2016, 8:30 am

Agenda

I. Call to Order by Chair

II. Public Testimony on All Agenda Items

III. Approval of Minutes of the December 17, 2015 Government Affairs/Audit/Legal Matters Committee Meeting

IV. Report on the Independent Financial Audit

V. Executive Session Pursuant to Hawaii Revised Statutes Section 92-4 and Section 92-5(a)(4), the Board may enter into Executive Session to consult with its attorneys on questions and issues on a matter pertaining to the Board’s powers, duties, privileges, immunities and liabilities with regard to the matters set forth in part VI.

VI. Procurement of the Independent Financial Auditor Contract

VII. Adjournment Note: Persons wishing to testify on items listed on the agenda are requested to register by completing a speaker registration form at the meeting or online on the HART section of the www.honolulutransit.org website. Each speaker is limited to a two-minute presentation. Persons who have not registered to speak in advance should raise their hands at the time designated for public testimony and they will be given an opportunity to speak following oral testimonies of the registered speakers. If you require special assistance, auxiliary aid and/or service to participate in this event (i.e. sign language interpreter; interpreter for language other than English, or wheelchair accessibility), please contact Cindy Matsushita at 768-6258 or email your request to [email protected] at least three business days prior to the event.

HONOLULU AUTHORITY FOR RAPIDTRANSPORTATION

HONOLULU RAIL TRANSIT PROJECT

INDEPENDENT FINANCIAL AUDITOR“II” CONTRACT

REQUEST FOR PROPOSALS

RFP-HRT-918006

OCTOBER 26, 2015

QUESTIONS RELATING TO THIS SOLICITATION, CONTACT:

[email protected]

RFP-HRT-918006 Instructions to OfferorsIndependent Financial Auditor “II” Contract Page 1 of 13

INSTRUCTIONS TO OFFERORSTABLE OF CONTENTS

1.0 Overview ................................................................................................................................. 21.1 HRTP Description .................................................................................................................... 21.2 Independent Financial Auditor “II” Contract Description .......................................................... 21.3 Solicitation Timetable............................................................................................................... 3

2.0 Term of the Contract.............................................................................................................. 33.0 Communications ..................................................................................................................... 3

3.1 Inquiries and Requests for Clarification .................................................................................... 33.2 Rules of Contact ....................................................................................................................... 3

4.0 Procurement Process .............................................................................................................. 34.1 Addenda................................................................................................................................... 34.2 Modification or Withdrawal of Proposals................................................................................. 44.3 Receipt and Registration of Proposals ....................................................................................... 44.4 Proposal Confidential During Solicitation Process .................................................................... 44.5 Proposals Property of HART .................................................................................................... 44.6 Priority List .............................................................................................................................. 44.7 Discussions with Offerors......................................................................................................... 44.8 Best and Final Offers ................................................................................................................ 44.9 Rejection of Proposals; Waiver of Informalities and Minor Irregularities .................................. 44.10 Basis of Award ......................................................................................................................... 54.11 Verification of Responsibility of Offeror................................................................................... 54.12 Execution of Contract ............................................................................................................... 54.13 Cancellation of Solicitation....................................................................................................... 64.14 Public Inspection; Segregation of Confidential Information ...................................................... 64.15 Debriefing ................................................................................................................................ 64.16 Protests..................................................................................................................................... 64.17 Commencement of Work.......................................................................................................... 64.18 Suspension and Debarment ....................................................................................................... 74.19 Conflict of Interest and Non-Disclosure Requirements.............................................................. 7

5.0 PREPARATION OF PROPOSALS; SUBMITTAL REQUIREMENTS ............................. 75.1 Proposals Signed by Authorized Personnel ............................................................................... 75.2 Review of RFP ......................................................................................................................... 75.3 Proposal Due Date .................................................................................................................... 75.4 Submittal Location ................................................................................................................... 75.5 Format, and Quantities.............................................................................................................. 85.6 Organization of Proposal .......................................................................................................... 8

6.0 Proposal Requirements, Evaluation Criteria and Evaluation Points.................................... 86.1 Cover Letter ............................................................................................................................. 86.2 Organizational Eligibility (Section 1)........................................................................................ 86.3 Experience and Professional Qualification of the Offeror Relevant to the Contract (Section

2) (35 Points)............................................................................................................................ 96.4 Adequate Qualified Staffing to Complete the Assignment (Section 3) (25 Points) ................... 106.5 Ability to Complete the Work in a Timely Manner (Section 4) (20 Points) .............................. 116.6 Price Proposal (Section 5) (20 Points) ..................................................................................... 11

7.0 Insurance .............................................................................................................................. 128.0 Acceptance of Terms and Conditions................................................................................... 129.0 Disadvantaged Business Enterprise (DBE) Contract Goal ................................................. 1210.0 No Reimbursements.............................................................................................................. 12ITO EXHIBITS ................................................................................................................................... 13ATTACHMENTS................................................................................................................................ 13


INSTRUCTIONS TO OFFERORS

1.0 OVERVIEW

The Honolulu Authority for Rapid Transportation (“HART”) is a semi-autonomous agency ofthe City and County of Honolulu (“City”), created pursuant to an amendment to the RevisedCharter of the City and County of Honolulu 1973 (“RCH”) to develop, operate, and maintain theHonolulu Rail Transit Project (“HRTP”). Pursuant to Section 17-111 of the RCH, the accountsand financial status of HART shall be examined annually by a certified public accountant. Theresults of such examination shall be reported to the HART Board of Directors, the City Counciland the Mayor. Accordingly, HART is issuing this Request for Proposals (“RFP”) to seekcompetitive sealed proposals from offerors that are interested in providing independent auditingservices which comply with the requirements of the RCH.

1.1 HRTP Description

The HRTP will provide high-capacity rapid transit service in the travel corridor between EastKapolei and Ala Moana Center. This corridor includes the majority of housing and employmenton O’ahu. The north-south width of the corridor is a maximum of four (4) miles, with thecorridor constrained by the Ko’olau and Wai’anae Mountain Ranges to the north and the PacificOcean to the south.

The HRTP is identified in the Final Environmental Impact Statement (“FEIS”) as the design,construction and operation of a twenty (20) mile grade-separated fixed guideway transit systembetween East Kapolei and Ala Moana Center. All parts of the guideway will be elevated, exceptnear Leeward Community College where it will be at-grade. The system will incorporate steelwheel on steel rail technology. The HRTP includes twenty-one (21) stations, one (1)Maintenance and Storage Facility (MSF), and eighty (80) light metro vehicles and associatedcore systems.

The FEIS was released in June 2010 and a Final Supplemental EIS and Amended Record ofDecision (ROD) were released in September 2013. The FEIS and additional information on theHRTP can be found at: http://honolulutransit.org.

1.2 Independent Financial Auditor “II” Contract Description

The work performed under the contract will be under the direction of HART Board’sGovernment Affairs/Audit/Legal Matters Committee Chair or his/her designee. The selectedcontractor may be required to perform a variety of financial auditing services, includingconducting financial audits of HART’s transactions accounts and books for fiscal years endingJune 30, 2016, June 30, 2017, June 30, 2018, and June 30, 2019, and conducting an examinationof the systems and procedures for accounting, reporting, and operational and internal controls ofHART.


1.3 Solicitation Timetable

The following solicitation timetable will be used for this RFP:

ACTIVITY DATEIssue RFP October 26, 2015Deadline for Clarification Requests November 9, 2015Issue Final Addendum November 17, 2015Proposal Due Date December 1, 2015 at 2:00 p.m. HSTAward of Contract (Tentative) January 20, 2015Notice to Proceed (Tentative) February 19, 2015

Any changes to the dates in the above timetable will be made by HART by written addendum.

2.0 TERM OF THE CONTRACT

The term of this Contract shall be for four (4) years commencing from the issuance of the Noticeto Proceed (“NTP”).

3.0 COMMUNICATIONS

3.1 Inquiries and Requests for Clarification

All inquiries and requests for clarification regarding this RFP shall be submitted to the TransitMailbox at the following email address: [email protected] by no later than thedeadline set forth above. All correspondence shall refer to the appropriate RFP number, pagenumber, and section number. See Exhibit 1. Oral interpretations or clarifications will be withoutlegal effect. Only answers to questions issued by a formal written addendum shall be binding onHART. Offerors may not contact HART officials, employees, Board members, orrepresentatives concerning this RFP while the solicitation process is in progress.

3.2 Rules of Contact

Offerors may not contact HART officials, Board members, employees or representativesconcerning this RFP while the solicitation process is in progress. The solicitation process beginswhen the RFP is issued and will be completed with the Award of the Contract. Any contactdetermined to be improper, at the sole discretion of HART, may result in disqualification.

4.0 PROCUREMENT PROCESS

4.1 Addenda

As it deems necessary, HART will issue responses to inquiries or corrections/amendments byway of written addenda issued prior to the Proposal Due Date. Additional background materialor modifications to RFP requirements, where necessary, will be communicated to all offerors bywritten addenda issued by HART.


4.2 Modification or Withdrawal of Proposals

Proposals submitted pursuant to this RFP may be modified or withdrawn prior to the ProposalDue Date in accordance with HAR §3-122-16.07.

4.3 Receipt and Registration of Proposals

In accordance with HAR § 3-122-51, proposals and any modifications thereto will be time-stamped upon receipt and held in a secure place by HART until the Proposal Due Date.Proposals and modifications will not be opened publicly, but will be opened in the presence oftwo or more HART officials. Prior to Contract award, proposals will be shown only to membersof the evaluation committee and HART personnel or their designees having legitimate interest inthem.

4.4 Proposal Confidential During Solicitation Process

HART will maintain a confidential process for the duration of this solicitation. All recordsrelated to this procurement, including, but not limited to, proposals, evaluations, priority listprocedures, price proposals, evaluation and selection procedures, and records during theevaluation and selection process, will remain confidential until the Contract award has beenposted by HART in accordance with HAR §3-122-9.01.

4.5 Proposals Property of HART

Proposals will become the property of HART. Copies of each proposal will be retained byHART after the proposal evaluation process.

4.6 Priority List

In accordance with HRS § 103D-303 and HAR § 3-122-53, a priority list will be establishedconsisting of up to three offerors. If more than three acceptable or potentially acceptableproposals have been submitted, the priority list will be limited through evaluation and ranking tothe offerors who submitted the highest-ranked proposals.

4.7 Discussions with Offerors

If discussions with offerors are required to make a selection, they will be conducted inaccordance with HAR § 3-122-53.

4.8 Best and Final Offers

If required, best and final offers will be accepted in accordance with HAR § 3-122-54.

4.9 Rejection of Proposals; Waiver of Informalities and Minor Irregularities

Proposals may be rejected in accordance with HAR § 3-122-97. Furthermore, HART may:a) Reject any or all proposals if such action is in the public interest; and


b) Waive informalities and minor irregularities in proposals received.

4.10 Basis of Award

The basis of award of the contract will be the “best value” in accordance with the evaluationcriteria set forth herein.

4.11 Verification of Responsibility of Offeror

The successful offeror shall, within three (3) business days of notification of contract awardfurnish proof of compliance with the requirements of HRS §103D-310(c):

HRS Chapter 237, tax clearance; HRS Chapter 383, unemployment insurance; HRS Chapter 386, workers’ compensation; HRS Chapter 392, temporary disability insurance; HRS Chapter 393, prepaid health care; and One of the following:

(a) Registered and incorporated or organized under the laws of the State ofHawaii, hereafter referred to as a “Hawaii business”; or

(b) Registered to do business in the State of Hawaii, hereinafter referred to as a“compliant non-Hawaii business.”

Vendors may choose to use the Hawaii Compliance Express (HCE), which allows businesses toregister online at http://vendors.ehawaii.gov to acquire a single, printable electronic “Certificateof Vendor Compliance.” The HCE provides current compliance status as of the issuance date.The “Certificate of Vendor Compliance,” indicating that the offeror’s status is compliant with therequirements of HRS section 103D-301(c), will be accepted for both contracting purposes andfinal payment. Vendors that elect to use the new HCE services will be required to pay an annualfee of twelve dollars ($12.00) to the Hawaii Information Consortium, LLC (HIC). Offerorschoosing not to participate in the HCE program will be required to provide the paper certificatesas specified above.

4.12 Execution of Contract

(a) Subsequent to contract award, HART will present the contract to the successfulofferor for execution. The successful offeror shall return the signed contract withinten (10) days from the date upon which the contracted was presented for signature byHART, or within such time as HART may otherwise allow.

(b) The successful offeror shall provide evidence of the required insurance coverageswhen it returns the signed contract to HART.


4.13 Cancellation of Solicitation

This solicitation may be cancelled at any time pursuant to the Chief Procurement Officer’sdetermination that cancellation is in the public interest or reasons based on, but not limited to,those set forth in HAR § 3-122-96.

4.14 Public Inspection; Segregation of Confidential Information

Public inspection will be in accordance with HAR §3-122-58. The existing contract file, exceptthose portions the offeror designates in writing to be confidential as trade secrets or otherproprietary data, subject to HAR § 3-122-58(b), will be available for public inspection uponposting of the Award pursuant to HRS § 103D-701.

If a person requests to inspect the portions of an offeror's proposal designated as confidentialpursuant to HAR § 3-122-46(9), the inspection will be subject to written determination byCorporation Counsel for confidentiality in accordance with HRS Chapter 92F. If CorporationCounsel determines in writing that the material designated as confidential is subject todisclosure, the material will be open to public inspection unless the offeror appeals pursuant toHRS § 92F-42(1).

4.15 Debriefing

The purpose of a debriefing is to inform the non-selected offerors of the basis for the sourceselection decision and contract award. A written request for a debriefing shall be made withinthree (3) working days after the posting of the award of the contract. To the extent practicable,debriefing shall be held by HART within seven (7) working days of the request for thedebriefing, provided the Chief Procurement Officer may determine whether to conductindividual or combined debriefings.

4.16 Protests

Protests shall be made in accordance with HRS § 103D-701 and HAR § 3-122-60. Any protestby a non-selected offeror pursuant to section HRS §103D-701 following a debriefing shall befiled in writing within five (5) working days after the date upon which the debriefing wasconducted.

Offerors are hereby notified of their right to appeal to the FTA pursuant to FTA C 4220.1FChapter VII, Section 1.b.

4.17 Commencement of Work

Work shall not commence until: (a) the contract has been executed; (b) the Chief ProcurementOfficer has certified the availability of funds; and (c) and written Notice to Proceed has beenissued.


4.18 Suspension and Debarment

In accordance with 2 CFR §1200 the Offeror is required to verify that none of the offeror’sprincipals, as defined in 2 CFR §180.995, or affiliates, as defined at 2 CFR §180.905, areexcluded or disqualified as defined at 2 CFR §§180-945 and 180.935. The offeror is required tocomply with 2 CFR §1200, Subpart C, and must include the requirements to comply with 2 CFR§1200, Subpart C, in any lower tier covered transaction it enters into. By signing and submittingits proposal, the offeror certifies to these requirements.

4.19 Conflict of Interest and Non-Disclosure Requirements

A contractor who was or is being paid for developing or preparing work specifications shall beprecluded from submitting an offer or receiving a contract for that particular solicitation inaccordance with HRS § 103D-405(d) and HAR § 3-122-13(e).

5.0 PREPARATION OF PROPOSALS; SUBMITTAL REQUIREMENTS

5.1 Proposals Signed by Authorized Personnel

Each proposal shall be signed in ink by the person legally authorized to do so on behalf of theentity submitting the and pursuant to proof of the authorized person’s authority to bind the entity.

5.2 Review of RFP

It is the responsibility of all offerors to examine the entire RFP and to seek clarification of anyrequirement that may not be clear and to check all responses for accuracy before submitting apProposal. Negligence in preparing a proposal confers no right of withdrawal after the ProposalDue Date.

5.3 Proposal Due Date

As specified above, proposals must be submitted to HART by no later than 2:00 p.m. HST onDecember 1, 2015. The proposals shall be enclosed in sealed containers, marked clearly withthe RFP number. Late submittals will not be accepted. It is the responsibility of the offeror toensure that its proposal is delivered at the location indicated below by the Proposal Due Date.

5.4 Submittal Location

Proposals shall be delivered to the following address:

HART Chief Procurement OfficerAttn: Procurement DivisionRFP-HRT-918006Honolulu Authority for Rapid Transportation1099 Alakea Street, Suite 1700Honolulu, Hawaii 96813


Submittals by facsimiles are not acceptable and shall not be considered.

5.5 Format, and Quantities

See ITO Exhibit 2 for Proposal format. Offerors shall provide one (1) original and four (4)copies of the proposal and appendices thereto. The signed original copy is to be identified as the“Original” on the cover and marked as “Copy 1 of 5.” All copies shall be provided in loose-leaf,3-ring binders, with the three appendices placed in a separate 3-ring binder. Each copy should beidentified on the cover(s) as “Copy # of 5.” Proposals are to be written in English, minimum 12-point font, and printed on 8-1/2” x 11” paper; any larger sheets should be folded to that size.Pages are to be consecutively numbered.

5.6 Organization of Proposal

Offerors are to follow the outline format provided in Exhibit 2 when preparing and organizingtheir proposals. All exhibits identified in ITO Exhibit 2 shall be submitted with the proposal.Specific content requirements for each section of the proposal and the corresponding evaluationpoints are described below.

6.0 PROPOSAL REQUIREMENTS, EVALUATION CRITERIA AND EVALUATIONPOINTS

6.1 Cover Letter

Offerors shall provide a 1-2 page letter indicating their desire to be considered for the RFP andstating the official names and roles of all Principal Participants, and known subcontractors.Offerors shall identify a single point of contact and the address, telephone and fax numbers, andemail address to which questions should be directed. Authorized representatives of the offeror'sorganization shall sign the letter. ITO Exhibits 3 and 4 shall be attached to the proposal coverletter.

6.2 Organizational Eligibility (Section 1)

Requirements and information to be provided in Section 1 of the Proposal are:

(a) Organizational Information, as identified on ITO Exhibit 5;

(b) If a partnership or corporation, submit ITO Exhibit 6;

(c) Principal Participant certification on ITO Exhibit 7 for each Principal Participantcovering the last five years;

(d) If a Joint Venture, Limited Liability Company, or Partnership:(1) Identity of the lead Principal Participant of the entity, if any;(2) Indicate the equity share percentage held by each member;(3) Include an express statement from each of the equity members of the entity to

confirm their joint and several liability; and


(4) Identify full details of the organizational structure.

(e) Certificate Regarding Lobbying on ITO Exhibit 11;

(f) Bidder Registration Form on ITO Exhibit 14; and

(g) Requirements and information to be provided in Appendix A to the Proposal:(1) Notarized Power(s) of Attorney for each Principal Participant indicating the

authority of the Principal Participant’s representative to sign for that PrincipalParticipant;

(2) Notarized Power(s) of Attorney for each Principal Participant indicating theauthority of the offeror’s designated point of contact to sign documents for and onbehalf of the offeror’s organization; and

(3) Alternatively, in lieu of the Powers of Attorney, the offeror may submit certifiedoriginal corporate resolutions for each Principal Participant and the offeror (asappropriate) indicating the authority of the Principal Participant’s and/or offeror’sdesignated point of contact to sign documents for and on behalf of the PrincipalParticipant and/or offeror’s organization. Such resolutions must be signed by theSecretary of the corporation and contain a corporate seal or notarization.

6.3 Experience and Professional Qualification of the Offeror Relevant to the Contract(Section 2) (35 Points)

(a) Experience and professional qualifications in performing similar financial audits ofgovernmental units:(1) Background and experience of the offeror. Provide description and background

information of the offeror, demonstrating that the offeror is qualified to performthe financial services requested. Information should include:(A) Name of the offeror, the address of the principal place of business in

Hawaii, and the length of time the offeror has been doing business inHawaii.

(B) The average number of Hawaii employees in the governmental audit sectionover the past three (3) years.

(C) Describe pertinent and unique resources of the offeror that the project teammay utilize for the proposed work (i.e., members with specialized expertise,national/international offices, expert panels and resources, databases, etc).

(D) Briefly describe the quality control system of the offeror.(E) Provide a copy of the latest external quality review of the offeror and

statement whether that review included a review of specific governmentalengagements.

(F) Disclose whether any Federal or state desk or field reviews have beenperformed on any of the offeror’s government audits during the past three(3) years.

(G) Provide any information on any disciplinary action taken or pending againstthe offeror during the past three (3) years with state regulatory bodies orprofessional organizations.

(H) Provide a copy of the latest audit reports of a governmental entity.


(2) Financial stability of the offeror:(A) The offeror must provide a credit reference(s).(B) The offeror shall provide its capability to meet the requirements of the

Contract specifically with respect to cash and working capital.(C) A copy of the Offeror’s most current balance sheet certified by the Offeror

to be a “Certified True Copy” shall be enclosed in Section II. If the Offerorwishes for such data to remain confidential, such pages containing thefinancial data shall be clearly marked “CONFIDENTIAL” on every pagethat contains confidential data.

(3) Identification of any Potential Conflicts of Interest:(A) The offeror shall disclose and provide what may be or may be perceived as a

potential conflict of interest, the nature of the potential conflict, andwhether it can be minimized or mitigated to safeguard the independence ofthe audits.

(B) The offeror shall provide an affirmative statement if there are no potentialconflicts of interest.

(b) Exhibits:(1) Submit Experience on ITO Exhibit 8.(2) Submit Past Performance on ITO Exhibit 10.

6.4 Adequate Qualified Staffing to Complete the Assignment (Section 3) (25 Points)

(a) Proposed Auditing Team. The offeror will be evaluated for the proposed auditingteam’s qualifications to perform the audit work. Please provide the following:(1) State the total number of professionals on the offeror’s proposed audit team and

each person’s name. Identify each person’s current standing as a certified publicaccountant in Hawaii and the credential to perform government financial audits.

(2) Specify the proposed scope of work and number of work hours for HART’sannual financial audit and total number of hours to be worked on the annualfinancial audit by all team members.

(3) Identify the person who shall serve as the Project Manager in charge ofcoordinating the engagement and list qualifications to serve in that capacity.

(4) Identify the person who shall serve as designated alternate to the Project Managerand list qualifications to serve in that capacity.

(5) Identify a person who shall serve as the primary contact person with HART. Theperson may be the Project Manager or designated alternate, but if another personis selected, that person’s qualifications to serve in this capacity shall be listed.

(6) The proposed Project Manager and alternate must be employed by the offeror asfull-time certified public accountants, who have been licensed to practice publicaccountancy in the State of Hawaii, and possess a current permit for the same.The proposal shall state the length of time the Project Manager and alternate havebeen licensed to practice public accountancy in the State of Hawaii and shallaffirm that the permit to practice public accountancy in the State of Hawaii will beheld for the term of the contract and that the Project Manager and alternate will beassigned to the offeror’s Oahu office for the contract.


(7) The offeror’s description of the qualifications of the proposed Project Manager’sand alternate’s experience shall include a listing of the following personallycompleted or directly supervised audit engagement:i) Limited general audits of governmental propriety and/or enterprise funds in

conformance with generally accepted government auditing standards,examining the financial statements, internal control structure, and compliancewith laws and regulations pertaining to the use of funds.

ii) Single audits of federal financial assistance programs of a government agencyin conformance with the Federal Single Audit Act of 1984 and pertinent U.S.Office of Management and Budget (OMB) Circulars.

iii) Limited general audits of governmental entities in conformance with generallyaccepted government auditing standards that required a total of at least onethousand (1,000) work hours which may be the same or similar to (i) and (ii)above.

iv) For each of the qualifying audit engagements noted in (i), (ii) and (iii),reference contract information, report date, the number of professionals in theaudit work team, and whether the report was personally completed by thesubject person, or completed under the direct supervision of the subjectperson.

v) For evaluation purposes only, copies of qualifying reports for (i), (ii) and (iii)shall be provided for review with the submitted proposal.

(8) For each person who shall serve as an audit team member, list the role assignedand qualifications to service in the capacity.

(b) Submit Key Personnel Information on ITO Exhibit 12.

6.5 Ability to Complete the Work in a Timely Manner (Section 4) (20 Points)

Offerors shall provide a preliminary work plan addressing the offeror’s proposed approach forthe following:

(a) The extent to which the proposal addresses and satisfies the scope of the work.

(b) All work elements are addressed and resources necessary to complete the scope ofwork.

(c) Access the offeror’s ability to complete the work in a timely manner.

6.6 Price Proposal (Section 5) (20 Points)

(a) Provide pricing in all the required fields in ITO Exhibit 9.

(b) Proposals shall include any and all applicable taxes.

(c) The Grand Total price of the proposal shall be considered the cost factor forevaluation purposes under HAR § 3-122-52(d).


(d) Submit Certificate of Current Cost or Pricing Data on ITO Exhibit 13.

7.0 INSURANCE

Offerors shall obtain and maintain insurance in the amounts and kinds specified in the GeneralTerms and Conditions of Professional Services, as may be amended by the Special Provisions.

8.0 ACCEPTANCE OF TERMS AND CONDITIONS

By submitting a proposal, an offeror expressly agrees to all of the terms, conditions, provisions,and requirements set forth in this RFP and the General Terms and Conditions of ProfessionalServices.

9.0 DISADVANTAGED BUSINESS ENTERPRISE (DBE) CONTRACT GOAL

HART has established an overall DBE goal of 13.00% for the duration of this contract and aseparate contract goal has not been established for this procurement.

Reports to HART. The successful offeror shall report its DBE participation obtained throughrace-neutral means throughout the period of performance. The successful offeror shall submitthe “DBE PARTICIPATION REPORT” reflecting payments made by the Contractor to DBEsubcontractors in accordance with Attachment A, Section 1.6(p)-(r) of the General Conditions.Payments to the Contractor will not be processed if the DBE PARTICIPATION REPORT is notproperly completed and attached. The DBE PARTICIPATION REPORT shall be prepared inthe format set forth in Attachment 1.6(a).

10.0 NO REIMBURSEMENTS

HART will not provide any reimbursement for the cost of developing or submitting a proposal inresponse to this RFP.


ITO EXHIBITSThe following exhibits are attached hereto and incorporated herein by reference:

Exhibit 1 - Offeror's Clarification RequestExhibit 2 - Proposal FormatExhibit 3 - Acknowledgment of Receipt Request for Proposals, Addenda and Responses

to Offeror's Clarification RequestsExhibit 4 - Proposal FormExhibit 5 - Offeror's Organization InformationExhibit 6 - Information Requested of Partnerships and CorporationsExhibit 7 - Principal Participant CertificationExhibit 8 - ExperienceExhibit 9 - Price Proposal FormExhibit 10 - Past PerformancesExhibit 11 - Certification Regarding LobbyingExhibit 12 - Key Personnel InformationExhibit 13 - Certificate of Current Cost or Pricing DataExhibit 14 - Bidder Registration Form

ATTACHMENTS Sample Agreement

Special Provisions

HART General Terms and Conditions for Professional Services (v8/2015)

Financial Statements and Independent Auditor’s Report

Honolulu Authority for Rapid Transportation

(a component unit of the City and County of Honolulu) June 30, 2015 and 2014

A Hawaii Limited Liability Partnership

1 1003 Bishop Street Suite 2400 Honolulu, HI 96813 Telephone: 808-526-2255 Fax: 808-536-5817 www.kmhllp.com

January 21, 2016 To the Board of Directors Honolulu Authority for Rapid Transportation City and County of Honolulu Ladies and Gentlemen: We have completed our financial audit of the Honolulu Authority for Rapid Transportation, a component unit of the City and County of Honolulu, (HART) as of and for the fiscal year ended June 30, 2015. The audit was performed in accordance with our agreement dated June 22, 2015. Objective of the audit The primary purpose of our audit was to form an opinion on the fairness of the presentation of HART’s financial statements as of and for the fiscal year ended June 30, 2015

Scope of the audit Our audit was performed in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. The scope of our audit included an examination of the transactions and accounting records of HART for the fiscal year ended June 30, 2015. Organization of the report This report is organized into five parts:

PART I. FINANCIAL STATEMENTS

PART II. REQUIRED SUPPLEMENTARY INFORMATION

PART III. REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON

COMPLIANCE AND OTHER MATTERS

PART IV. SCHEDULE OF FINDINGS

PART V. RESPONSE OF THE AFFECTED AGENCY

At this time, we wish to thank HART’s personnel for their cooperation and assistance extended to us during our audit. We will be happy to respond to any questions that you may have on this report.

Very truly yours,

KMH LLP Honolulu Hawaii January 21, 2016

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Contents Page PART I FINANCIAL STATEMENTS

Independent Auditor’s Report 4 Management's Discussion and Analysis 6 Basic Financial Statements

Statements of Net Position 12 Statements of Revenues, Expenses and Changes in Net Position 13 Statements of Cash Flows 14

Notes to Financial Statements 16 PART II REQUIRED SUPPLEMENTARY INFORMATION

Schedule of the HART’s Proportionate Share of the Net Pension Liability 42 Schedule of the HART’s Contributions 43 Schedule of Funding Progress for the Hawaii Employer-Union

Health Benefits Trust Fund 44 PART III REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

AND ON COMPLIANCE AND OTHER MATTERS

Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 46

PART IV SCHEDULE OF FINDINGS 48 PART V RESPONSE OF THE AFFECTED AGENCY 50

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PART I FINANCIAL STATEMENTS



Independent Auditor’s Report To the Board of Directors Honolulu Authority for Rapid Transportation City and County of Honolulu Report on the Financial Statements

We have audited the accompanying financial statements of the Honolulu Authority for Rapid Transportation (HART), a component unit of the City and County of Honolulu, as of and for the years ended June 30, 2015 and 2014, and the related notes to the financial statements, which collectively comprise the HART’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Honolulu Authority for Rapid Transportation, as of June 30, 2015 and 2014, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

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Emphasis of a Matter

As discussed in Note A to the basic financial statements, in 2015 the HART adopted Governmental Accounting Standards Board (GASB) Statements no. 68 (GASB 68), Accounting and Reporting for Pensions (an amendment of GASB Statement No. 27) and GASB Statement No. 71 (GASB 71), Pension Transition for Contributions Made subsequent to the Measurement Date, an Amendment of GASB Statement No. 68. As a result of adopting these standards and management’s determination that the restatement of the basic financial statements as of and for the year ended June 30, 2014 is not practical, the HART has elected to restate beginning net position for fiscal year ended June 30, 2015. Our opinion is not modified with respect to this matter. Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 6 through 11 and the schedule of the HART’s proportionate share of the net pension liability, schedule of HART’s contributions and schedule of funding progress for the Hawaii Employer-Union Health Benefits Trust Fund on pages 42, 43, and 44, respectively be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated January 21, 2016 on our consideration of the HART's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering HART’s internal control over financial reporting and compliance.

KMH LLP Honolulu, HI January 21, 2016

Honolulu Authority for Rapid Transportation (a component unit of the City and County of Honolulu)

MANAGEMENT’S DISCUSSION AND ANALYSIS

June 30, 2015 and 2014

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The Honolulu Authority for Rapid Transportation (HART) is a semi-autonomous government unit of the City and County of Honolulu (City), which came into being on July 1, 2011 pursuant to a 2010 amendment to the Revised Charter of the City and County of Honolulu (RCH). HART consists of a board of directors (Board), executive director, and staff. HART is authorized under the RCH to “develop, operate, maintain and expand the city fixed guideway system.” The Honolulu Rail Transit Project (the Project) consists of design and construction of a 20-mile, grade-separated fixed rail system from East Kapolei to the Ala Moana Center in Honolulu, Hawaii. The Project begins in East Kapolei, proceeds to the University of Hawaii at West Oahu, then turns east to Pearl Harbor and the Honolulu International Airport, and ends at Kona Street adjacent to the Ala Moana Center. The Project will operate in an exclusive right-of-way and will be elevated except for a 0.6-mile, at-grade section near Leeward Community College. The Project includes 21 transit stations; a maintenance and storage facility; 80 light metro fully automated (driverless) rail vehicles and associated core systems; and four park-and-ride facilities at several locations. This section presents the management’s discussion and analysis of HART’s financial condition and activities for the fiscal years ended June 30, 2015 and 2014. This summary is designed to provide an introduction to the financial statements and the financial condition of HART. This information should be read in conjunction with the financial statements. Prior to July 1, 2011, the financial position and results of operations of the Project were reported as a governmental fund in the City’s Comprehensive Annual Financial Reports. Overview of the Financial Statements The financial statements are presented using the economic resources measurement focus and the accrual basis of accounting, whereby revenues and expenses are recognized in the period earned or incurred. The basic financial statements include statements of net position, statements of revenues, expenses and changes in net position, statements of cash flows, and notes to the financial statements. The statements of net position present the resources and obligations of HART at June 30, 2015 and 2014 respectively. The statement of revenues, expenses and changes in net position present information showing how HART’s net position changed during the past two fiscal years. The statements of cash flows present changes in cash and cash equivalents resulting from operating, investing, capital and related financing activities, and non-capital financing activities. The notes to the financial statements provide required disclosures and other information necessary for the fair presentation of the financial statements. The notes detail information about HART’s significant accounting policies, account balances, related party transactions, employee benefit plans, commitments, contingencies, and other significant events. Supplementary information on pension and post-employment benefits is also included.



June 30, 2015 and 2014

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Financial Highlights Condensed Statements of Revenues, Expenses and Changes in Net Position

Increase %

2015 2014 (decrease) Change

Operating expenses 17,730,898 19,416,780 (1,685,882) -9%

Operating loss (17,730,898) (19,416,780) 1,685,882 -9%

Non-operating revenues and expenses 382,273,978 326,582,755 55,691,223 17%

Increase in net position 364,543,080 307,165,975 57,377,105 19%

Net position at beginning of year,

as previously reported 1,592,374,173 1,285,208,198 N/A N/A

Restatement due to change in

accounting principle (13,081,777) - (13,081,777) N/A

Net position at beginning of year,

as restated 1,579,292,396 - N/A N/A

Net position at end of year 1,943,835,476$ 1,592,374,173$ 351,461,303$ 22%

$‐

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

OperatingRevenues

OperatingExpenses

Non-operatingRevenues

CapitalContributions

Increase in NetPosition

Statements of Revenues, Expenses and Changes in Net Position

2015

2014



June 30, 2015 and 2014

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Financial Highlights (continued) HART’s primary non-operating revenue sources are the 0.5% county surcharge on the State of Hawaii’s General Excise Tax (GET) and grant assistance from the U.S. Department of Transportation’s Federal Transit Administration (FTA). Pursuant to Section 248-2.6 of the Hawaii Revised Statutes, the State Department of Taxation remits 90% of the surcharge to the City on a quarterly basis. During FY 2015 and FY 2014, HART recognized $223,666,342 and $218,390,853, respectively from the GET county surcharge. In FY 2015 and FY 2014 HART also recognized $158,034,519 and $107,116,948, respectively in FTA grant assistance. During FY 15, HART also recognized a prior period adjustment of $13,081,777 related to the implementation of GASB Statement No. 68, which reduced beginning net assets.

$-

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

GET SurchargeRevenue

Federal Grant Revenue Interest and other

Sources of Non-Operating Revenue

2015

2014



June 30, 2015 and 2014

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Financial Highlights (continued) Condensed Statements of Net Position

Increase %

2015 2014 (decrease) Change

Assets

Current assetsCash and cash equivalents 293,010,823$ 441,011,319$ (148,000,496)$ -34%Receivables 133,672,108 129,991,834 3,680,274 3%Prepaid expenses 27,800,740 1,217,390 26,583,350 2184%Capital assets, net 1,708,618,647 1,184,636,596 523,982,051 44%

DEFERRED OUTFLOWS OF RESOURCES 2,913,149 - 2,913,149 N/A

Total assets 2,166,015,467$ 1,756,857,139$ 409,158,328 23%

LiabilitiesCurrent liabilities 171,750,169 151,431,453$ 20,318,716$ 13%Other long-term liabilities - noncurrent 48,757,933 13,051,513 35,706,420 274%DEFERRED INFLOWS OF RESOURCES 1,671,889 - 1,671,889 N/A

Total liabilities 222,179,991 164,482,966 57,697,025 35%

Net position 1,943,835,476 1,592,374,173 351,461,303 22%

Total liabilities and net position 2,166,015,467$ 1,756,857,139$ 409,158,328 23%

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

$1,800,000,000

Current Assets Capital Assets, net Current Liabilities Other Long TermLiabilities

Statements of Net Position

2015

2014



June 30, 2015 and 2014

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Financial Highlights (continued) Total assets and deferred outflows at year-end FY 2015 and FY 2014 were $2,166,015,467 and $1,756,857,139, respectively. Total liabilities and deferred inflows at year-end FY 2015 and FY 2014 were $222,179,991 and $164,482,966, respectively. Net position increased by $364,543,080 primarily due to intergovernmental revenues and federal grants. The Project has executed $2,486,920,607 in contracts since October 2009 to date for the planning, design, and construction of the Project. This amounts to 56.7% of the anticipated total project cost. The Project will affect an estimated 224 parcels of real property. As of June 30, 2015, HART has acquired title to or use of 120 parcels of real property. As of June 30, 2015, 9.3% of the utilities have been relocated. Utility relocations are performed by the respective companies owning the equipment. Overall design progress is 85.7% based on the weighted average progress of the individual final design contracts and the design levels of effort of the Design-Build (DB) and Design-Build-Operate-Maintain (DBOM) construction contracts. The construction of the west guideway aerial structure from East Kapolei Station to Leeward Community College (LCC) is well underway as part of the West Oahu/Farrington Highway (WOFH) Guideway design-build project. Additionally, the Kamehameha Highway (KHG) Guideway design-build project continues with wet and dry utility relocations as well as roadway widening work in preparation for the production drilled shaft and segmented guideway construction from LCC to Aloha Stadium. Over three miles of the elevated guideway between east Kapolei and Waipahu has been completed with more than 180 columns built and nearly 1,600 guideway segments erected. The balanced cantilever construction work over the westbound side of the H-1 Freeway for the West Oahu Farrington Highway segment and the elevated rail guideway over the Fort Weaver Road overpass have been completed. The design-build construction of the HART Maintenance and Storage Facility (MSF) is progressing as planned with substantial completion expected in April 2016.



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Financial Highlights (continued) Capital Assets and Long-Term Debt As of the end of FY 2015, HART had $1,708 million invested in capital assets. This amount represents an increase (including additions and deductions) of approximately $524 million, or 44%, over last year.

2015 2014

Equipment and machinery 68,778$ 86,500$ Land 91,102,437 64,768,559 Construction in progress 1,617,447,432 1,119,781,537

Total 1,708,618,647$ 1,184,636,596$

HART has not issued any long-term bonds. Additional information on HART’s capital assets and long-term liabilities can be found in note D to the financial statements. Risks On June 29, 2012, HART submitted the City’s request to the FTA for a Full Funding Grant Agreement (FFGA) which was awarded on December 19, 2012. The maximum Federal New Starts financial contribution under the FFGA is $1.55 billion for the Project; however the annual appropriation amounts may be reduced and appropriated over a longer period than planned. The project faces the normal risks associated with a multi-year, major construction project that includes unanticipated construction delays, cost inflation over the period of construction, and economic downturns that impact revenues. See Notes J and L for a discussion on pending litigation and the liquidity risk to the project. Request for Information This financial report is designed to provide a general overview of HART’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Honolulu Authority for Rapid Transportation, 1099 Alakea Street, Suite 1700, Honolulu, Hawaii 96813.


STATEMENTS OF NET POSITION

June 30, 2015 and 2014

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2015 2014

ASSETSCurrent assets:

Cash & cash equivalents 293,010,823$ 441,011,319$ Receivables 133,672,108 129,991,834 Prepaid expenses 27,800,740 1,217,390

Total current assets 454,483,671 572,220,543

Capital assets:Equipment and machinery 171,540 171,540 Accumulated depreciation (102,762) (85,040)

68,778 86,500 Land 91,102,437 64,768,559 Construction work in progress 1,617,447,432 1,119,781,537

Capital assets, net 1,708,618,647 1,184,636,596

Total assets 2,163,102,318 1,756,857,139

DEFERRED OUTFLOWS OF RESOURCES 2,913,149 -

Total assets and deferred outflows of resources 2,166,015,467$ 1,756,857,139$

LIABILITIESCurrent liabilities:

Accounts payable 137,921,888$ 115,552,902$ Accrued liabilities 373,203 392,537 Other long-term liabilities 33,455,078 35,486,014

Total current liabilities 171,750,169 151,431,453

Other long-term liabilities - noncurrent 48,757,933 13,051,513 Total liabilities 220,508,102 164,482,966

DEFERRED INFLOWS OF RESOURCES 1,671,889 -

Total liabilities and deferred inflows of resources 222,179,991 164,482,966

NET POSITIONNet investment in capital assets 1,506,183,913 1,069,158,564 Unrestricted 437,651,563 523,215,609

Total net position 1,943,835,476 1,592,374,173

Total liabilities, deferred inflows of resources, and net position 2,166,015,467$ 1,756,857,139$

The accompanying notes are an integral part of these financial statements.


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITIION

Years ended June 30, 2015 and 2014

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2015 2014OPERATING EXPENSES

Administration and general 11,721,853$ 12,015,351$ Fringe benefits 4,383,253 3,835,579 Insurance 1,092,851 1,909,200 Contractual services 357,133 1,145,619 Utilities 83,590 221,445 Materials and supplies 69,422 245,541 Depreciation 17,722 36,622 Maintenance 5,074 7,423

Total operating expenses 17,730,898 19,416,780

Operating loss (17,730,898) (19,416,780)

NON-OPERATING REVENUES AND EXPENSESIntergovernmental revenues:

County surcharge 223,666,342 218,390,853 Federal grants 158,034,519 107,116,948

Interest income 208,245 298,748 Other revenue 364,872 776,206

Total nonoperating revenues 382,273,978 326,582,755

Change in net position 364,543,080 307,165,975

Net position at beginning of year, as previously reported 1,592,374,173 1,285,208,198

Restatement due to change in accounting principle (13,081,777) -

Net position at beginning of year, as restated 1,579,292,396 -

Net position at end of year 1,943,835,476$ 1,592,374,173$



STATEMENTS OF CASH FLOWS


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2015 2014

Cash flows from operating activitiesCash payments to suppliers for goods and services (11,028,378)$ (10,594,843)$ Cash payments to employees (12,301,128) (11,566,726)

Net cash used in operating activities (23,329,506) (22,161,569)

Cash flows from noncapital financing activitiesIntergovernmental revenues 376,704,770 332,188,472

Net cash provided by noncapital financing activities 376,704,770 332,188,472

Cash flows from capital and related financing activitiesAcquisition and construction of capital assets (501,584,005) (263,024,043)

Net cash used in capital and related financing activities (501,584,005) (263,024,043)

Cash flows from investing activitiesInterest on cash and cash equivalents 208,245 298,748

Net cash provided by investing activities 208,245 298,748

NET (DECREASE) INCREASEIN CASH AND CASH EQUIVALENTS (148,000,496) 47,301,608

Cash and cash equivalents at beginning of year 441,011,319 393,709,711

Cash and cash equivalents at end of year 293,010,823$ 441,011,319$



STATEMENTS OF CASH FLOWS (continued)


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2015 2014

Reconciliation of operating loss to net cash used in operating activitiesOperating loss (17,730,898)$ (19,416,780)$ Adjustments to reconcile operating loss to

net cash used in operating activitiesDepreciation 17,722 36,622 Changes in assets and liabilities

Increase in deferred outflows of resources (1,311,007) - Increase in deferred inflows of resources 1,671,889 - Decrease (increase) in receivables 1,680,689 (1,627,203) (Increase) decrease in prepaid expenses (26,583,350) 1,848,984 (Decrease) in accounts payable (46,782) (262,808) (Decrease) increase in accrued liabilities (19,334) 31,119 Increase (decrease) in other liabilities 18,991,565 (2,771,503)

Total adjustments (5,598,608) (2,744,789)

Net cash used in operating activities (23,329,506)$ (22,161,569)$

Non-cash capital financing activities: During the year ended June 30, 2015 and 2014, HART accrued additional costs as construction in progress of $22,415,768 and $63,684,666, respectively. The accompanying notes are an integral part of these financial statements.


NOTES TO FINANCIAL STATEMENTS

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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Operations The Revised Charter of the City and County of Honolulu authorizes the Honolulu Authority for Rapid Transportation (HART) to develop, operate, maintain and expand the city fixed guideway system. HART is a semi-autonomous government unit of the City and County of Honolulu (City). It is a component unit of the City. HART is in the process of developing the rail transit system and has not begun revenue operations.

2. Financial Statement Presentation

The accounting policies of HART conform to accounting principles generally accepted in the United States of America as applicable to enterprise activities of governmental units, as promulgated by the Government Accounting Standards Board (GASB). Recently Adopted Accounting Pronouncements Effective July 1, 2014 the HART implemented Governmental Accounting Standards Board (GASB) Statement No. 68 (GASB 68), Accounting and Reporting for Pensions (an amendment of GASB Statement No. 27) and GASB Statement No. 71 (GASB 71), Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68. GASB 68 establishes standards of accounting and financial reporting for defined benefit pensions and defined contribution pensions provided to the employees of state and local government employers through pension plans that are administered through trusts or equivalent arrangements in which:

Contributions from employers and nonemployer contributing entities to the pension plan and

earnings on those contributions are irrevocable. Pension plan assets are dedicated to providing pensions to plan members in accordance with

the benefit terms. Pension plan assets are legally protected from the creditors of employer, nonemployee

contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members.

GASB 68 replaces the requirements of GASB Statement No. 27 (GASB 27), Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of GASB Statement No. 50 (GASB 50), Pension Disclosures, as they related to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria. The requirements of GASB 27 and 50 remain applicable for pensions that are not covered by the scope of GASB 68.


NOTES TO FINANCIAL STATEMENTS (continued)

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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2. Financial Statement Presentation (continued) GASB 71 is required to be implemented simultaneously with GASB 68 and amends the requirement related to certain pension contributions made to defined benefit pension plans prior to implementation of GASB 68 by employers and nonemployer contributing entities.

As permitted in GASB 68, management determined that the restatement of fiscal year 2014 is not practical; the cumulative effect of adopting GASB 68 related to prior fiscal years has been recorded as a restatement adjustment to beginning net position for the fiscal year ended June 30, 2015. The adoption of GASB 68 and 71 has resulted in the restatement of the HART’s fiscal year 2015 beginning net position by $(14,683,919) and $1,602,142 related to changes in net pension liability and deferred outflows, respectively, from prior fiscal years. See Note G for further information. Recently Issued Accounting Pronouncements In February 2015, GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement enhances the comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. The provisions of this Statement are effective for periods beginning after June 15, 2015. The HART has not yet determined the effect this Statement will have on its financial statements. In June 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, replacing Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and Statement No. 57 OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. This statement establishes new accounting and financial reporting requirements for OPEB plans. This Statement requires governments providing defined benefit OPEB plans to recognize their long-term obligation for OPEB as a liability for the first time, and to more comprehensively and comparably measure the annual cost of OPEB benefits. The provisions of this Statement are effective for periods beginning after June 15, 2017. The HART has not yet determined the effect this Statement will have on its financial statements.



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2. Financial Statement Presentation (continued) In August 2015, GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify the hierarchy of generally accepted principles used to prepare financial statements of state and local governments. As a result, governments will apply financial reporting guidance with less variation, which will improve the usefulness of financial statements. The provisions of this Statement are effective for periods beginning after June 15, 2015. The HART has not yet determined the effect this Statement will have on its financial statements.

3. Basis of Accounting

The accompanying financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The operating revenues of HART are the result of providing services in connection with the delivery of transportation services of the rail system, which is not yet operational. The operating expenses of HART include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

4. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Specifically, management has made estimates based on assumptions for intergovernmental receivables, construction delay claims, environmental remediation liabilities and net pension liability. Actual results could differ from those estimates.



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5. Deferred Outflows and Inflows of Resources

Deferred outflows of resources represent consumptions of net position that apply to future periods and will not be recognized as an outflow of resources (expenditures) until then. Deferred inflows represent acquisitions of net position that apply to future periods and will not be recognized as an inflow of resources (revenues). According to paragraph 33 of GASB No. 68, differences between expected and actual experience and changes in assumptions are recognized in pension expense using a systematic and rational method over a closed period equal to the average of the expected remaining service lives of all employees that are provided with pensions through the pension plan (active and inactive employees) determined as of the beginning of the measurement period. The average of expected remaining service lives for the purposes of recognizing the applicable deferred outflows and inflows of resources established in the 2014 fiscal year is 5.7661 years. Additionally, differences between projected and actual earnings on pension plan investments are recognized in pension expense using a systematic and rational method over a closed five-year period. Contributions to the pension plan from the employer subsequent to the measurement date of the net pension liability and before the end of the reporting period are reported as deferred outflows.

6. Revenue Recognition

Revenue sources that are considered susceptible to accrual when earned include a county surcharge on the State of Hawaii’s General Excise Tax (GET) and grant assistance from the U.S. Department of Transportation’s Federal Transit Administration (FTA). GET revenue is recognized when earned. Revenues on cost reimbursement contracts are recognized when allowable and reimbursable expenses are incurred, and upon meeting the legal and contractual requirements of the funding source. No allowance for doubtful accounts was recorded as of June 30, 2015 and 2014.

7. Cash and Cash Equivalents

HART considers all cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition to be cash and cash equivalents.



June 30, 2015 and 2014

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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 8. Capital Assets

Capital assets are generally those assets with an individual price in excess of $5,000 for equipment and machinery and $100,000 for infrastructure, buildings, and structures with a useful life of more than one year. Capital assets are stated at cost and include contributions by governmental agencies at cost or estimated value. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs related to repairs and maintenance is expensed as incurred. Assets are depreciated over the individual asset’s estimated useful life using the straight-line method. Depreciation on both purchased and contributed assets is charged against operations Depreciation on all assets is provided for on the straight-line basis over the following estimated useful lives:

Years

Infrastructure 50-75 Buildings and improvements 30-50 Equipment and machinery 5-25 Rail vehicles 25-35

9. Compensated Absences HART accrues accumulated vacation when earned by the employee. Vacation benefits accrue at a rate of one and three-quarters working days per month. Each employee is allowed to accumulate a maximum of 90 days of accrued vacation as of the end of the calendar year (see Note F). Sick leave accumulates at the rate of one and three-quarters working days for each month. Sick leave is taken only in the event of illness and is not convertible to pay; accordingly, sick leave is not accrued in the accompanying financial statements. Employees who retire or leave government service in good standing with 60 or more unused sick leave days are entitled to an additional service credit in the retirement system. At June 30, 2015 and 2014, accumulated sick leave amounted to approximately $2,063,000 and $1,771,000, respectively.



June 30, 2015 and 2014

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10. Deferred Compensation Plan

All full-time employees of HART are eligible to participate in the City and County of Honolulu’s Public Employees’ Deferred Compensation Program (Plan), adopted pursuant to Internal Revenue Code Section 457. The Plan permits eligible employees to defer a portion of their salary until future years by contributing to a fund managed by a plan administrator. The deferred compensation amounts are not available to employees until termination, retirement, death, or unforeseeable emergency. A trust fund was established to protect Plan assets from claims of general creditors and from diversion to any uses other than paying benefits to participants and beneficiaries. Plan assets of approximately $3,497,000 and $3,280,000 are not reported in the accompanying financial statements at June 30, 2015 and 2014, respectively.

11. Net Position

Net position comprises the various net earnings (losses) from operating and non-operating revenues, expenses and contributed capital. Net position is classified in the following two components: net investment in capital assets or unrestricted net position. Net investment in capital assets consists of capital assets, net of accumulated depreciation and reduced by outstanding debt that is attributable to the acquisition, construction, or improvement of those assets. Unrestricted net position consists of all other net position not included in net investment in capital assets.

12. Risk Management

HART is exposed to various risks for losses related to torts; theft of or damage to, or destruction of assets; errors or omissions; natural disasters; and injuries to employees. A liability for a claim for a risk of loss is established if the information indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss is reasonably estimable.

13. Reclassifications Certain reclassifications were made to prior year’s financial statements to conform to the 2015 presentation. Such reclassifications had no impact on the previously reported change in net position.



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14. Subsequent Events

Management has evaluated subsequent events through January 21, 2016, the date on which the financial statements were available to be issued.

NOTE B - CASH AND CASH EQUIVALENTS

Cash deposited with the City is maintained by the Department of Budget and Fiscal Services of the City. The City maintains a cash and investment pool that is used by all of the City’s funds and HART. Information pertaining to credit risk and interest rate risk is available for only the total cash and investment pool, which is disclosed in the City’s Comprehensive Annual Financial Report (CAFR) available at the City’s website: www.honolulu.gov/budget/budget-cafr.html. The respective portion of this pool is displayed in the accompanying financial statements as cash and cash equivalents. The Hawaii Revised Statutes (HRS) provide for the City’s Director of Budget and Fiscal Services to deposit the cash with any national or state bank or federally insured financial institution authorized to do business in the State of Hawaii, provided that all deposits are fully insured or collateralized with securities held by the City or its agents in the City’s name.

State statutes also authorize the City to invest in obligations of the U.S. Treasury and U.S. agencies, obligations of other states, cities and counties, mutual funds and bank repurchase agreements. Investments in repurchase agreements are primarily U.S. government or federal agency securities. The City does not have a policy relative to interest rate risk. Maturity date for all investments is less than one year.

NOTE C – RECEIVABLES

Receivables as of June 30, 2015 and 2014 were comprised of the following amounts:

2015 2014 Intergovernmental

General excise tax $ 52,330,383 $ 49,457,334 Federal grants 81,265,823 78,777,909

133,596,206 128,265,243 Other 75,902 1,756,591

Total receivables $ 133,672,108 $ 129,991,834



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NOTE D - CAPITAL ASSETS Capital assets activity during 2015 and 2014 were as follows:

Balance Balance July 1, 2014 Additions Reductions June 30, 2015

Equipment and machinery $ 171,540 $ - $ - $ 171,540Less: accumulated depreciation (85,040) (17,722) - (102,762)

86,500 (17,722) - 68,778Land 64,768,559 26,333,878 - 91,102,437Construction in progress 1,119,781,537 497,665,895 - 1,617,447,432

Total $ 1,184,636,596 $523,982,051 $ - $ 1,708,618,647

Balance Balance July 1, 2013 Additions Reductions June 30, 2014

Equipment and machinery $ 144,569 $ 26,971 $ - $ 171,540Less: accumulated depreciation (48,418) (36,622) - (85,040)

96,151 (9,651) - 86,500Land 50,163,534 14,605,025 - 64,768,559Construction in progress 807,704,824 312,076,713 - 1,119,781,537

Total $857,964,509 $326,672,087 $ - $ 1,184,636,596

NOTE E - COMMITMENTS

1. Leases

HART leases office space and equipment under operating leases expiring through fiscal year 2021. The future minimum rental payments for operating leases at June 30, 2015 are approximately as follows:

Fiscal Year Annual2016 1,252,0002017 1,138,0002018 751,0002019 770,0002020 795,0002021 342,000

Total Minimum Payments 5,048,000$



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NOTE E – COMMITMENTS (continued)

1. Leases (continued)

Additionally, these leases provide for payment of common area charges. Office and equipment rental expenses were approximately $2,172,000 and $2,316,000 for the years ended June 30, 2015 and 2014, respectively and are included in administration and general expenses in the accompanying statements of revenues, expenses and changes in net position.

2. Other Commitments

HART has contractual commitments at June 30, 2015 of approximately $2,150,438,000. These include contracts for construction, design, and professional services.

NOTE F – OTHER LONG-TERM LIABILITIES

The following is a summary of changes in other long-term liabilities during the fiscal years ended June 30, 2015 and 2014:

Balance June 30, 2014 (as restated)

Additions

Reductions

Balance June 30, 2015

Approximate amounts due

within one year

Accrued vacation $ 1,043,092 $ 622,708 $ 499,154 $ 1,166,646 $ 94,128 Other postemployment

benefits 1,652,481 544,000

97,000

2,099,481

- Delay claims 44,341,954 58,256,511 42,902,530 59,695,935 33,360,950 Environmental remediation 1,500,000 3,345,000 - 4,845,000 - Net pension liability* 14,683,919 - 277,970 14,405,949 -

Total $ 63,221,446 $ 62,768,219 $ 43,776,654 $ 82,213,011 $ 33,455,078

Approximate

amounts Balance Balance due within June 30, 2013 Additions Reductions June 30, 2014 one year Accrued vacation $ 1,020,250 $ 457,111 $ 434,269 $ 1,043,092 $ 95,014 Other postemployment

benefits 1,353,481 299,000

-

1,652,481

- Delay claims 48,935,299 26,580,817 31,174,162 44,341,954 35,391,000 Environmental remediation - 1,500,000 - 1,500,000 -

Total $ 51,309,030 $ 28,836,928 $ 31,608,431 $ 48,537,527 $ 35,486,014

* For the purposes of this note, the balance at June 30, 2014 was restated to reflect the impact of the adoption of GASB Statement

No. 68. See notes A and G for further discussion.



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NOTE G - EMPLOYEE BENEFIT PLANS

1. Defined Benefit Plan Description of Plan

All eligible employees of the State and counties are provided with pensions through a cost-sharing multiple-employer defined benefit pension plan administered by the ERS. Benefit terms, eligibility, and contribution requirements are established by HRS Chapter 88 and can be amended through legislation. The ERS issues a publicly available financial report that can be obtained at ERS’s website at http://ers.ehawaii.gov/.

Benefits Provided

The ERS provides retirement, disability, and death benefits that are covered by the provisions of the noncontributory, contributory, and hybrid retirement membership classes. The three classes provide a monthly retirement allowance equal to the benefit multiplier (generally 1.25% or 2%) multiplied by the average final compensation multiplied by years of credited service. The benefit multiplier decreased by 0.25% for new hybrid and contributory plan members hired after June 30, 2012. Average final compensation is an average of the highest salaries during any 3 years of credited service, excluding any salary paid in lieu of vacation for employees hired January 1, 1971 or later and the average of the highest salaries during any five years of credited service including any salary paid in lieu of vacation for employees hired prior to January 1, 1971. For members hired before July 1, 2012, the original retirement allowance is increased by 2.5% each July 1 following the calendar year of retirement. This cumulative benefit is not compounded and increases each year by 2.5% of the original retirement allowance without a ceiling (2.5% of the original retirement allowance the first year, 5.0% the second year, 7.5% the third year, etc.). For members hired after June 30, 2012 the post-retirement annuity increase was decreased to 1.5% per year. Retirement benefits for certain groups, such as police officers, firefighters, some investigators, sewer workers, judges, and elected officials, vary from general employees.



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NOTE G - EMPLOYEE BENEFIT PLANS (continued)

1. Defined Benefit Plan (continued) Noncontributory Class:

Retirement Benefits

General employees’ retirement benefits are determined as 1.25% of average final compensation multiplied by the years of credited service. Employees with 10 years of credited service are eligible to retire at age 62. Employees with 30 years of credited service are eligible to retire at age 55.

Disability Benefits

Members are eligible for service-related disability benefits regardless of length of service and receive a lifetime pension of 35% of their average final compensation. Ten years of credited service is required for ordinary disability. Ordinary disability benefits are determined in the same manner as retirement benefits but are payable immediately, without an actuarial reduction, and at a minimum of 12.5% of average final compensation.

Death Benefits

For service-connected deaths, the surviving spouse/reciprocal beneficiary receives a monthly benefit of 30% of the average final compensation until remarriage or re-entry into a new reciprocal beneficiary relationship. Additional benefits are payable to surviving dependent children up to age 18. If there is no spouse/reciprocal beneficiary or dependent children, no benefit is payable. Ten years of credited service is required for ordinary death benefits. For ordinary death benefits, the surviving spouse/reciprocal beneficiary (until remarriage/reentry into a new reciprocal beneficiary relationship) and dependent children (up to age 18) receive a benefit equal to a percentage of member’s accrued maximum allowance unreduced for age or, if the member was eligible for retirement at the time of death, the surviving spouse/reciprocal beneficiary receives 100% joint and survivor lifetime pension.



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1. Defined Benefit Plan (continued) Contributory Class for Employees Hired prior to July 1, 2012:

Retirement Benefits

General employees’ retirement benefits are determined as 2% of average final compensation multiplied by the years of credited service. General employees with 5 years of credited service are eligible to retire at age 55.

Disability Benefits

Members are eligible for service-related disability benefits regardless of length of service and receive a one-time payment of the member’s contributions and accrued interest plus a lifetime pension of 50% of their average final compensation. Ten years of credited service is required for ordinary disability. Ordinary disability benefits are determined as 1.75% of average final compensation multiplied by the years of credited service but are payable immediately, without an actuarial reduction, and at a minimum of 30% of average final compensation. For service-connected deaths, the designated beneficiary receives a lump sum payment of the member’s contributions and accrued interest plus a monthly benefit of 50% of the average final compensation until remarriage or re-entry into a new reciprocal beneficiary relationship. If there is no surviving spouse/reciprocal beneficiary, surviving children (up to age 18) or dependent parents are eligible for the monthly benefit. If there is no spouse/reciprocal beneficiary or dependent children/parents, the death benefit is payable to the designated beneficiary. Ordinary death benefits are available to employees who were active at time of death with at least 1 year of service. Ordinary death benefits consist of a lump sum payment of the member’s contributions and accrued interest plus a percentage of the salary earned in the 12 months preceding death, or 50% Joint and Survivor lifetime pension if the member was not eligible for retirement at the time of death but was credited with at least 10 years of service and designated one beneficiary, or 100% Joint and Survivor lifetime pension if the member was eligible for retirement at the time of death and designated one beneficiary.



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1. Defined Benefit Plan (continued) Contributory Class for Employees Hired After June 30, 2012:

Retirement Benefits

Judges and elected officers’ retirement benefits are determined as 3.0% of average final compensation multiplied by the years of credited service up to a maximum of 75%. Judges and elected officers with 10 years of credited service are eligible to retire at age 60.

Disability and Death Benefits

Members are eligible for service-related disability benefits regardless of length of service and receive a lifetime pension of 50% of their average final compensation plus refund of contributions and accrued interest. Ten years of credited service is required for ordinary disability. Ordinary disability benefits are 3.0% of average final compensation for each year of service for judges and elected officers and 1.75% of average final compensation for each year of services for police and firefighters and are payable immediately, without an actuarial reduction, at a minimum of 30% of average final compensation. Death benefits for contributory class members hired after June 30, 2012 are generally the same as those for contributory class members hired June 30, 2012 and prior.

Hybrid Class for Employees Hired Prior to July 1, 2012:

Retirement Benefits

General employees’ retirement benefits are determined as 2% of average final compensation multiplied by the years of credited service. General employees with 5 years of credited service are eligible to retire at age 62. General employees with 30 years of credited service are eligible to retire at age 55.

Disability Benefits

Members are eligible for service-related disability benefits regardless of length of service and receive a lifetime pension of 35% of their average final compensation plus refund of their contributions and accrued interest. Ten years of credited service is required for ordinary disability. Ordinary disability benefits are determined in the same manner as retirement benefits but are payable immediately, without an actuarial reduction, and at a minimum of 25% of average final compensation.



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1. Defined Benefit Plan (continued) Death Benefits

For service-connected deaths, the surviving spouse/reciprocal beneficiary receives a lump sum payment of the member’s contributions and accrued interest plus a monthly benefit of 50% of the average final compensation to the surviving spouse/reciprocal beneficiary until remarriage or re-entry into a new reciprocal beneficiary relationship. If there is no surviving spouse/reciprocal beneficiary, surviving children (up to age 18) or dependent parents are eligible for the monthly benefit. If there is no spouse/reciprocal beneficiary or dependent children/parents, the ordinary death benefit is payable to the designated beneficiary. Ordinary death benefits are available to employees who were active at time of death with at least 5 years of service. Ordinary death benefits consist of a lump sum payment of the member’s contributions and accrued interest plus a percentage multiplied by 150%, or 50% Joint and Survivor lifetime pension if the member was not eligible for retirement at the time of death but was credited with at least 10 years of service and designated one beneficiary, or 100% Joint and Survivor lifetime pension if the member was eligible for retirement at the time of death and designated one beneficiary.

Hybrid Class for Employees Hired After June 30, 2012:

Retirement Benefits

General employees’ retirement benefits are determined as 1.75% of average final compensation multiplied by the years of credited service. General employees with 10 years of credited service are eligible to retire at age 65. Employees with 30 years of credited service are eligible to retire at age 60. Sewer workers, water safety officers, and EMTs may retire with 25 years of credited service at age 55.

Disability and Death Benefits

Provisions for disability and death benefits generally remain the same except for ordinary death benefits. Ordinary death benefits are available to employees who were active at time of death with at least 10 years of service. Ordinary death benefits consist of a lump sum payment of the member’s contributions and accrued interest plus a percentage multiplied by 120%, or 50% Joint and Survivor lifetime pension if the member was not eligible for retirement at the time of death but was credited with at least 10 years of service and designated one beneficiary, or 100% Joint and Survivor lifetime pension if the member was eligible for retirement at the time of death and designated one beneficiary or if less than 10 years of service, return of member’s contributions and accrued interest.



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1. Defined Benefit Plan (continued) Contributions

Contributions are established by HRS Chapter 88 and may be amended through legislation. The employer rate is set by statute based on the recommendations of the ERS actuary resulting from an experience study conducted every five years. Since July 1, 2005, the employer contribution rate is a fixed percentage of compensation, including the normal cost plus amounts required to pay for the unfunded actuarial accrued liabilities. The HART’s contributions requirements as of June 30, 2015, 2014, and 2013 were approximately $1,305,000, $1,168,000, and $1,029,000, respectively. The contribution rate was 16.50, 16.00, and 15.50 percent for the years ended June 30, 2015, 2014 and 2013, respectively. The employer is required to make all contributions for members in the noncontributory plan. For contributory class employees hired prior to July 1, 2012, general employees are required to contribute 7.8% of their salary. For contributory class employees hired after June 30, 2012 are required to contribute 9.8% of their salary. Hybrid members hired prior July 1, 2012 are required to contribute 6.0% of their salary. Hybrid members hired after June 30, 2012 are required to contribute 8.0% of their salary. The HART’s payroll for employees covered by the plan was approximately $7,912,000, $7,301,000, and $6,638,000 for 2015, 2014, and 2013, respectively.

Pension Liabilities, Pension Expense, and Deferred Outflows and Deferred Inflows of Resources Related to Pensions

At June 30, 2015 HART reported a liability of approximately $14.41 million for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. HART’s proportion of the net pension liability was based on a projection of HART’s long-term share of contributions to the pension plan relative to the projected contributions of all participating members of ERS, actuarially determined. At June 30, 2014 HART’s proportionate share was .18% which was an increase of .02% from its proportionate share measured as of June 30, 2013. There were no changes in other assumptions and inputs that affected the measurement of the total pension liability since the prior measurement date. There were no changes between the measurement date, June 30, 2014, and the reporting date, June 30, 2015, that are expected to have a significant effect on the proportionate share of the net pension liability.



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NOTE G - EMPLOYEE BENEFIT PLANS (continued) 1. Defined Benefit Plan (continued)

For the fiscal year ended June 30, 2015, HART recognized pension expense of approximately $1,862,000. At June 30, 2015, HART reported deferred outflows and inflows of resources related to pensions from the following sources:

Deferred

Outflows of Resources

Deferred Inflows of Resources

Difference between actual and expected experience $ 183,192 $ -

Net difference between projected and actual earnings on pension plan investments

-

1,671,889

Changes in proportion and differences between employer contributions and proportionate share of contributions

950,760

-

HART contributions subsequent to the measurement date 1,779,197 -

Total $ 2,913,149 $ 1,671,889

$1.78 million reported as deferred outflows of resources related to pensions resulting from HART contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2016. Other amounts reported as deferred outflows and inflows of resources related to pension will be recognized in pension expense as follows:

Years ending June 30:

2016 $ (180,052) 2017 (180,052) 2018 (180,052) 2019 (180,052) 2020 182,271

$ (537,937)



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Actuarial Assumptions

The total pension liability in the June 30, 2014 actuarial valuation was determined using the following actuarial assumptions for general employees, applied to all periods included in the measurement: Inflation 3.00%

Projected Salary Increases 4.00% to 8.00%*

Investment Rate of Return 7.75% *

Payroll Growth Rate 3.50%

*including inflation

The same rates were applied to all periods. There were no changes to ad hoc postemployment benefits including COLA. Post-retirement mortality rates are based on Client Specific Tables and the 1994 US Group Annuity Mortality Statistic Tables for police and firefighters. Pre-retirement mortality rates are based on the RP-2000 tables. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the five year period ended June 30, 2010. ERS updates their experience study every five years. The long-term expected rate of return on pension plan investments was determined using a “top down approach” of the Bespoke Client-Constrained Simulation-based Optimization Model (a statistical technique known as “re-sampling with replacement” that directly keys in on specific plan-level risk factors as stipulated by the ERS Board) in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.



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The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class

Long-Term Target

Allocation

Long-Term Expected Real Rate of Return

Domestic equity 30% 8.5% International equity 26 9.0 Fixed income 20 3.1 Real estate 7* 8.5 Private equity 7* 11.8 Real return 5* 6.1 Covered calls 5 7.7

Total 100%

*The real estate, private equity, and real return targets will be the percentage actually invested up to 7%, 7%, and 5%, respectively, of the total fund. Changes in the real estate, private equity, and real return targets will be offset by an equal percentage change in the large cap domestic equity target.

The discount rate used to measure the net pension liability was 7.75%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at statutorily required rates, actuarially determined. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. There has been no change in the discount rate since the prior measurement date.

The following presents HART’s proportionate share of the net pension liability calculated using the single discount rate of 7.75%, as well as what HART’s proportionate share of the net pension liability would be if it were calculated using a single discount rate that is 1-percentage point lower or 1-percentage-point higher than the current rates:

1 percent Decrease (6.75%)

Current Discount

Rate (7.75%)

1 percent Increase (8.75%)

HART’s proportionate share of the net pension liability $18,259,259 $14,405,949 $10,552,639



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Pension plan fiduciary net position

The pension plan’s fiduciary net position is determined on the same basis used by the pension plan. The ERS financial statements are prepared using the accrual basis of accounting under which expenses are recorded when the liability is incurred, and revenues are recorded in the accounting period in which they are earned and become measurable. Employer and member contributions are recognized in the period in which the contributions are due. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investment purchases and sales are recorded as of their trade date. Administrative expenses are financed exclusively with investment income. There were no significant changes after the report measurement date. Detailed information about the pension plan’s fiduciary net position is available in the separately issued ERS financial report. ERS’s complete financial statements are available at http://www.ers.ehawaii.gov.

Payables to the Pension Plan

As of June 30, 2015, HART had no payable to ERS.

2. Post-Retirement Health Care and Life Insurance Benefits The HART provides certain other postemployment benefits (OPEB) other than pensions to all qualified employees. Pursuant to Chapter 87A of the HRS, the HART contributes to the Hawaii Employer-Union Health Benefits Trust Fund (EUTF) an agent multi-employer defined benefit plan. The EUTF was established to provide a single delivery system of health benefits for state and county workers, retirees and their dependents. The EUTF currently provides medical, dental, vision, and life insurance benefits. The EUTF issues an annual financial report that is available to the public. That report may be obtained by writing to the EUTF at 201 Merchant Street, Suite 1520, Honolulu, Hawaii 96813.

Eligibility

For employees hired before July 1, 1996, the HART pays 100% of the monthly health care premium for employees retiring with 10 or more years of credited service, and 50% of the monthly premium for employees retiring with fewer than 10 years of credited service.



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NOTE G - EMPLOYEE BENEFIT PLANS (continued) 2. Post-Retirement Health Care and Life Insurance Benefits (continued)

For employees hired after June 30, 1996 and retiring with 25 years or more of service, the HART pays the entire health care premium. For employees retiring with at least 15 years of service but fewer than 25 years of service, the HART pays 75% of the monthly Medicare or non-Medicare premium. For those retiring with at least 10 years but less than 15 years of service, the HART pays 50% of the retired employees’ monthly Medicare or non-Medicare premium. For those retiring with less than 10 years of service, the HART makes no contributions.

For employees hired after June 30, 2001 and retiring with over 25 years of service, the HART will pay 100% of the monthly premium based on the self- plan. For those who retire with at least 15 years but fewer than 25 years of service, the HART will pay 75% of the retired employees’ monthly Medicare or non-Medicare premium based on the self- plan. For those retiring with at least 10 years but fewer than 15 years of service, the HART pays 50% of the retired employees’ monthly Medicare or non-Medicare premium based on the self- plan. For those with fewer than 10 years of service, the HART makes no contributions. The HART also reimburses 100% of Medicare premium costs for retirees and qualified dependents (through the State), who are at least 65 years of age and have at least 10 years of service.

For active employees, the employer’s contributions are based upon negotiated collective bargaining agreements. Employer contributions for employees not covered by collective bargaining agreements and for retirees are prescribed by the HRS. The HART is required to contribute the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities over 30 years.



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Annual OPEB Cost

The following table displays for the years ended June 30, 2015, 2014 and 2013, the components of the annual OPEB cost, the amount actually contributed to the plan, the changes to the net OPEB obligation, and the percentage of annual OPEB cost contributed:

2015 2014 2013 Annual required contribution $ 532,000 $ 292,000 $ 282,000Interest on net OPEB obligation 55,000 34,000 - Adjustment to the annual required contribution (43,000) (27,000) -

Annual OPEB Cost 544,000 299,000 282,000Contributions made (97,000) - -

Increase in net OPEB obligation 447,000 299,000 282,000Net OPEB obligation – beginning of year 789,000 490,000 208,000

Net OPEB obligation – end of year $ 1,236,000 $ 789,000 $ 490,000

Percentage of annual OPEB cost contributed 18% 0% 0%

Funded Status and Funding Progress

The following is the schedule of the funded status and funding progress of the plan as of the most recent actuarial valuation date, that are, July 1, 2013 and July 1, 2011:

July 1, 2013 July 1, 2011 Actuarial accrued liability $ 3,413,000 $ 1,964,000 Actuarial value of plan assets 9,000 - Unfunded actuarial liability (UAAL) $ 3,404,000 $ 1,964,000

Funded ratio 0.3% 0.0%

Covered payroll (Active plan members) $ 6,760,000 $ 5,385,000

UAAL as a percentage of covered payroll 50.4% 36.5%



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Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. On July 3, 2013, the Governor signed into law Act 268, SLH of 2013. Act 268 requires the EUTF to establish and administer separate trust accounts for each public employer for the purpose of receiving irrevocable employer contributions to prefund post-employment health and other benefit costs for retirees and their beneficiaries. It establishes the Hawaii EUTF Trust Fund Task Force to examine further steps to address the unfunded liability and requires all public employers to make annual required contributions effective fiscal year 2014. Commencing fiscal year 2019, the annual public employer contribution shall be equal to the annual required contribution, as determined by an actuary retained by the EUTF board.

Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the most recent actuarial valuation, dated as of July 1, 2013, the entry age normal actuarial cost method was used. The actuarial assumptions included a discount rate of 7.0%, which was based on EUTF’s anticipated asset investment return and the HART’s anticipated funding level. Actuarial assumptions also included an annual health cost trend rate for PPO plans of 9.0% for 2014, declining to a rate of 5% after 10 years, and HMO plans of 7.5% for 2014, declining to a rate of 5% after 10 years; expected payroll increases of 3.5% to amortize unfunded liabilities, projected salary increases based on the ERS July 1, 2013 assumptions to determine the actuarial accrued liability, and an inflation rate of 3.0%. The unfunded actuarial accrued liability is being amortized over a 30 year closed period as a level percentage of projected payrolls.



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The EUTF issues a stand-alone financial report that includes financial statements and required supplementary information, which may be obtained at the following address: State of Hawaii Employer-Union Health Benefits Trust Fund, 201 Merchant Street, Suite 1520, Honolulu, Hawaii 96813.

NOTE H - RELATED PARTY TRANSACTIONS

1. Intergovernmental Revenues and Federal Grants During the year ended June 30, 2015 and 2014, the HART recognized intergovernmental revenues of $223,666,342 and $218,390,853, respectively, from the General Excise Tax (GET) county surcharge and $158,034,519 and $107,116,948, respectively, in Federal Transit Authority (FTA) grant assistance.

2. Central Administrative Services Expense Fee

HART has an agreement with the City to pay a Central Administrative Services Expense (CASE) fee for treasury, personnel, purchasing, legal, and other services that the City provides to HART on an on-going basis. CASE fees totaled $621,389 and $923,621 for the years ended June 30, 2015 and 2014, respectively, and is included as part of administration and general expense in the statements of revenues, expenses and changes in net position.

NOTE I – DELAY CLAIM COSTS

As of June 30, 2015 and 2014, HART has recorded approximately $59.7 million and $44.3 million, respectively, related to delayed claims resulting from the HonoluluTraffic.com, et. al. v. Federal Transit Administration, et. al. and the Kaleikini v. Formby et al. cases which were settled in fiscal year 2014. These amounts have been included in other long-term liabilities in the accompanying statements of net position. The increase of approximately $15.4 million has been included in construction work in process in the accompanying statements of net position.



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NOTE J – LITIGATION

On September 8, 2015, a complaint was filed against the City and County of Honolulu, seeking a declaration that certain votes by the City Council were invalid due to the nondisclosure of alleged conflicts of interest by various Councilmembers, and that therefore the laws resulting from those votes are void and unenforceable. The lawsuit also asks that the City be enjoined from enforcing or continuing to provide funding for the laws in question, until such time as the laws are ratified in accordance with orders of the court. The votes in question relate to ordinances or resolutions that the City Council approved with regard to the Honolulu Rail Transit Project, related issuance and sale of general obligation bond and bond anticipation notes, and real property transfers. An amended complaint was filed on November 6, 2015. The case is in the preliminary stages of litigation, and the outcome or any potential liability is not determinable at this time. The City intends to vigorously defend itself.

NOTE K - ENVIRONMENTAL ISSUES

HART is currently aware of soil contamination at various sites that it has acquired. Based on preliminary studies, HART has determined that as of June 30, 2015 and 2014, the current total estimated costs for remediation are approximately $4.8 million and $1.5 million, respectively. These amounts are included in other long-term liabilities in the accompanying statements of net position. The increase of approximately $3.3 million has been included in land in the accompanying statements of net position.

NOTE L – LIQUIDITY RISK

On December 18, 2014, HART’s CEO & Executive Director informed the HART Board of Directors that the projected capital costs of the project would increase by approximately $600 million while projected revenues would decrease by approximately $310 million. In total, the project would need additional revenues of $910 million to cover the additional capital costs and revenue shortfall. The additional cost estimates included lawsuits and delay claims of $190 million, construction cost escalations, utility relocations and project enhancements of $170 million and allocated contingency of $240 million. The revenue shortfall consisted of $100 million of general excise tax (GET) surcharge shortfall, and $210 million for the deletion of federal section 5307 funds from the project revenue per Honolulu City Council Resolution No. 15-18.



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NOTE L – LIQUIDITY RISK

In May 2015, the Hawaii State Legislature passed House Bill 134 extending the GET surcharge for the construction of the rail project for another five years from December 31, 2022 to December 31, 2027. The extension, which was signed into law as Act 240 on July 14, 2015, requires the Honolulu City Council to adopt the tax extension before July 1, 2016. It is estimated that the five-year extension will generate additional GET surcharge revenues of $1.5 billion which would cover the anticipated cost increases and revenue shortfall. On October 15, 2015 the HART Board of Directors were presented with updated cost estimates based on recent contract bids, and updated construction industry cost escalation estimates and current economic conditions in Hawaii. The revised projected capital costs were increased by $714 million, including $299 million for unallocated contingency, bringing the total cost increase to $1.314 billion. The additional increases are attributable to an 18-month extension of the project completion date from January 2020 to June 2021, and to continuing escalation of construction costs in Hawaii. The FTA issued a letter dated November 12, 2015 expressing concern that the City has not yet completed the actions needed to extend the GET surcharge that is critical to completing the project. The letter states that “until FTA has agreed to a revised cost estimate and schedule, and a financial plan which includes a commitment of all of the local funds needed to cover the cost estimate, FTA cannot award the Fiscal Year 2015 increment of Section 5309 funds ($250 million) under the terms of the FFGA.” As of January 21, 2016, City Council Bill 23 to adopt the GET surcharge extension has not been adopted. In its current form, Bill 23 would extend the one half percent GET surcharge from January 1, 2023 to December 31, 2027 and requires that the expenditures of surcharge moneys be limited to $4.815 billion and expended only on the minimum operable segment and associated debt financing costs. It is anticipated that Bill 23 will be enacted by the City Council at its January 27, 2016 meeting.

In the event that the City Council does not adopt Bill 23 and extend the GET surcharge beyond 2022, it is currently estimated that the project would not have sufficient revenues to complete the construction of all twenty-one stations and associated elevated guideway. In addition, should the GET surcharge extension not be extended, the FTA may declare the City in breach of the grant agreement, and discontinue awarding the remaining portions of the $1.55 billion federal grant. The FTA may also require the City to return the $503 million of federal funds that have been disbursed for the project to date of which $412 million was received as of June 30, 2015 and $91 million was received subsequent to year end. As of June 30, 2015, the potential impact of the aforementioned items, including but not exclusive to any potential impairment to capital assets, is not reflected in the amounts reported in the financial statements.

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PART II

REQUIRED SUPPLEMENTARY INFORMATION


SCHEDULE OF THE HART’S PROPORTIONATE SHARE

OF THE NET PENSION LIABILITY

LAST 10 FISCAL YEARS

See independent auditor’s report

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Proportion of Net Pension

Liability

Proportionate Share of the Net Pension Liability Covered Payroll

Proportionate share of the net pension liability as a percentage of its covered

payroll

Plan fiduciary net position as a

percentage of the total pension

liability

Year Ended June 30, 2015 0.1797%

$ 14,405,949

$ 7,301,318 197.31% 63.92%

2014 0.1644% 14,683,919 6,231,742 235.63% 57.96% 2006 - 2013*

* Information for this period is not available. The table will be compiled prospectively


SCHEDULE OF CONTRIBUTIONS

LAST 4 FISCAL YEARS


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Statutorily Required

Contribution

Contributions in Relation to the

Statutorily Required

Contributions

Contribution Excess

(Deficiency) Covered Payroll

Contributions as a Percentage of Covered Payroll

Year Ended June 30,

2015 $ 1,305,429 $ 1,305,429 $ - $ 7,911,690 16.50%

2014 1,168,211 1,168,211 - 7,301,318 16.00%

2013 1,028,869 1,028,869 - 6,637,865 15.50%

2012 782,968 782,968 - 5,219,792 15.00%


SCHEDULE OF FUNDING PROGRESS FOR

HAWAII EMPLOYER-UNION HEALTH BENEFITS TRUST FUND

June 30, 2015


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Actuarial UAAL as aActuarial Actuarial accrued Unfunded percentagevaluation value liability AAL Funded Covered of covered

date of assets (AAL) (UAAL) ratio payroll payrollJuly 1, 2013 9,000 3,413,000$ 3,404,000$ 0.3% 6,760,000$ 50.4%July 1, 2011 - 1,964,000$ 1,964,000$ 0.0% 5,385,000$ 36.5%

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PART III

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS



REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Independent Auditor’s Report We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Honolulu Authority for Rapid Transportation (HART), as of and for the year ended June 30 2015, and the related notes to the financial statements, which collectively comprise HART’s basic financial statements, and have issued our report thereon dated January 21, 2016. Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered HART's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of HART’s internal control. Accordingly, we do not express an opinion on the effectiveness of HART’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters

As part of obtaining reasonable assurance about whether HART's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings as item 2015-01.

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HART’s Response to Finding

HART’s response to the finding identified in our audit is described in the accompanying response of the affected agency. HART’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

KMH LLP Honolulu, Hawaii January 21, 2016

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PART IV

SCHEDULE OF FINDINGS


Schedule of Findings

June 30, 2015

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Finding No.: 2015-01 Timely Submission of Weekly Payroll Information Type of Finding: Non-Compliance with Grant Agreements Criteria: 29 CFR Subtitle A section 5.5 states that the contractor shall submit weekly for each week in which any contract work is performed a copy of all payrolls to the appropriate federal agency if the agency is a party to the contract, but if the agency is not such a party, the contractor will submit the payrolls to the applicant, sponsor, or owner, as the case may be, for transmission to the appropriate federal agency. The payrolls submitted shall set out accurately and completely all of the information required to be maintained under 29 CFR 5.5(a)(3)(i), except that full social security numbers and home addresses shall not be included on weekly transmittals. Instead the payrolls shall only need to include an individually identifying number for each employee (e.g., the last four digits of the employee's social security number). The required weekly payroll information may be submitted in any form desired. The prime contractor is responsible for the submission of copies of payrolls by all subcontractors. Condition, cause, and context: During our audit, we noted that the HART has not been diligent in requiring prime contractors to submit weekly payroll information within the required timeframe. Although the prime contractors are responsible to submit weekly payroll information, the HART’s current practice allows prime contractors to aggregate several weeks of the required weekly payroll information and submit that information in batches at various intervals during the period (i.e., every two weeks or monthly). We tested 60 payroll submissions and noted the following:

50 instances where certified payrolls were not submitted within 7 days (weekly) of the pay period end date.

1 instance where a non-performance report was missing. Effect: Failure to provide weekly payroll information within the required timeframe resulted in non-compliance with the program requirements. Recommendation: The HART should require its prime contractors to submit weekly payroll information within the required timeframe.

PKF Pacific Hawaii LLP Accountants & Business Advisors

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PART V

RESPONSE OF THE AFFECTED AGENCY


Response of Affected Agency

June 30, 2015

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FINDING 2015-01 – Timely Submission of Weekly Payroll Information Response of Management Management has hired a full time staff person who will be responsible for verifying that all required weekly payroll reports from contractors are being submitted on a timely basis. Policies and procedures will also be put in place that will require contractors to submit weekly required payroll reports and notifications when such reports are not being filed on a timely basis.

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